Jay Abraham's Case Study #86
From: Perry Turnbull
To: Jay Abraham
Sent: Tuesday, August 13, 2002 8:48 AM
Case Study of the powerful influence an Abraham principal can have on a small company.
Company Description: Educational Products Company deriving income from the sale of audio visual equipment and resultant maintenance fees of the same hardware. Annual sales were approximately $500,000-$600,000 per year with a profit margin of about 5%.
Business Model Challenge: The biggest challenge the company faced was that most of the company revenue was based on new hardware system sales. Little of the company profit came from same customer sales. Therefore, little lasting value (other than word of mouth testimonials) came from the existing customer base.
Abrahamic Insight: After reading "Your Marketing Genius At Work", the idea of continuing to make a profit from existing customers weighed heavily upon me. I was also impressed with the win-win concept of delivering excessive value in the product or service a company offers. I struggled to find how we could marry those two principals together in our business model.
After a few days of thought, it came to me; offer an extended warranty on the hardware based on the recurring purchase of textbooks we had customarily offered for free with the original purchase of the system. We knew that our systems were hearty and required only minor maintenance, but customers were always concerned since the systems were unique and only our firm knew how to repair certain parts of the system.
The solution was to set a minimum requirement of textbooks purchased per year in order to renew the warranty and free maintenance on the hardware systems we installed. Due to the increase profits that came from the textbooks sales, we lowered the hardware price. As a result of the lower hardware prices, our hardware sales increased, which by definition drove our textbook sales even higher.
Result: By the end of the first year our sales volume had doubled, and our profit margin increased to approximately 15%. Our customers were happier than they had ever been and our business was far more profitable.